A fuel station during the oil crisis of 1973. A ratcheting up of prices today would make solar and wind more competitive.
Photograph: Popperfoto/Getty

The Opec oil cartel chose its moment well. Inflationary pressures had been building in the global economy for years and stocks of crude were low. With Israel on top in the Yom Kippur war, Arab oil producers decided to step in. They announced production cuts and an oil embargo on the US and other western countries.

The decision had far-reaching consequences. Oil prices more than quadrupled in a matter of months. Inflation rocketed, triggering demands for higher pay. Rising business costs led to job losses on a scale not seen since the 1930s. This was the moment, 45 years ago to the month, when the post-war boom ended and the era of stagflation began.

Memories of October 1973 have been rekindled by the death of Jamal Khashoggi at the hands of a Saudi Arabian hit squad at the country’s consulate in Turkey. The Saudi explanation that the dissident journalist died as a result of a fist fight has been viewed with scepticism. Donald Trump has said the consequences could be “very severe” if the government in Riyadh is found to have ordered the killing.

The White House has not specified whether “very severe” includes the sort of punitive economic and financial sanctions recently imposed on Iran, but if it does the Saudis say they will retaliate by weaponising oil. The message is clear. Back off or we will hurt you just as we did in the 1970s.

There would be serious economic consequences were events to unfold in this way. The price of crude rose after Trump announced sanctions on Iran, and Saudi Arabia is a much more significant player. Oil prices are already hovering around the $80 a barrel mark and would spike to well over $100 a barrel should Saudi impose significant output curbs. Oil hit a peak price, unadjusted for inflation, of $147 a barrel in the summer of 2008 and could easily return to that sort of level.

The question, though, is whether the Sauds would be dumb enough to act in such a fashion, because the lesson of 1973 is that the short-term gains from cutting off oil supplies are outweighed by the long-term costs. What’s more, the costs are higher and the benefits are smaller than they were in the 1970s.

For a start, new sources of oil have emerged in the past four and a half decades. Saudi Arabia was second to Russia in the table of oil producers in 2016, with the US in third place as a result of the expansion of shale production. Saudi production matters, but not as much as it did.

Developed economies are also much less oil-intensive than they were in the 1970s. That’s partly the result of the shift from manufacturing to services, and partly because high oil prices in the 1970s encouraged industry to become more energy-efficient. In the past 25 years, the amount of energy needed per dollar of economic output has fallen by a third.

The two oil shocks of the 1970s – the one in 1973-74 was followed by a second in 1979-80 - were both followed by deep recessions that brought the price crashing down. By the mid-1980s, a glut of crude meant oil prices adjusted for inflation had fallen by 75% from their peak. By then, oil-importing countries had realised their vulnerability and had begun diversifying into natural gas and nuclear.

The biggest beneficiaries of Saudi output curbs today would be solar and wind producers. The unit cost of renewables has already fallen sharply as a result of technological advances, and each ratcheting up of oil prices will make solar and wind more competitive.

If the west has become less oil-dependent, the opposite is true for Saudi Arabia, which, according to estimates from the International Monetary Fund, needs oil prices of $85-87 a barrel to balance its budget. The country’s reliance on oil revenues was exposed in the period between 2014 and 2016, when the price of crude collapsed from $110 to $30 a barrel. During that time, the Saudi budget deficit increased from 3.5% to 15.8% of GDP, necessitating unpopular austerity measures for a population grown accustomed to free public services, generous welfare benefits and subsidised energy.

The funeral of a senior Houthi official who was killed by a Saudi-led coalition airstrike in Sanaa, Yemen. Photograph: Hani Mohammed/AP

Riyadh knows that it needs to diversify out of oil, but the plan is to do so at a pace that does not lead to social unrest. Half of the population is under the age of 25 and the unemployment rate is more than 12%, a potentially combustible mix. The whole point of organising an investment conference this week that so many western politicians are now boycotting was to expand the non-oil sectors of the economy.

What does all this mean? It means, simply, that the country with most to lose from a sharp rise in oil prices would be Saudi Arabia itself. Claims that western sanctions would prompt retaliatory action of such severity that they would derail the global economy are a gigantic bluff.

All this, of course, assumes that the developed world adopts a get-tough approach with Saudi Arabia. So far there is no real evidence of them planning to take the kind of action Riyadh really fears - cutting off supplies of military hardware. The reason for that has nothing to do with concerns that the country will dust off the 1973 playbook and everything to do with the scramble to get hold of Saudi petrodollars.

The chance to win juicy contracts has meant the US, the UK and other countries have turned a blind eye to the bombing of civilians in Yemen, and the same rationale will almost certainly apply to Khashoggi’s death. When Trump makes the argument “if we don’t sell arms to the Saudis somebody else will” he speaks for other governments as well.